3. 1. Definition
Multi-strategy funds are a variety of investment
strategies. Regardless of the directional movement in
equity, interest rate or currency markets, the
investment objective is to deliver consistently positive
returns.
(Starr, 2004)
4. 2. Origins
The migration of talented and entrepreneurial investment
professionals from large asset management firms to
specialised firms was a result of the extensive growth in
hedge funds.
Necessity to find new ways to increase fund capacity
Launch of new funds with different strategies
(Starr, 2004)
5. 3. Risks
The diversification of strategies can prejudice the returns
of a single strategy during a very "hot" period;
Nevertheless, in the long term, the performance and
consistency of multi-strategy funds should prove their
worth, delivering low volatility, and high risk-adjusted returns
both in absolute and relative terms.
(Starr, 2004)
6. 4. Benefits
Capacity to reduce exposure by shifting into cash or remain invested in suboptimal opportunities, when the inefficiencies in a specific expertise of a
single-strategy fund wane;
Flexibility to capitalise on the best opportunities, allocating capital away
from less-attractive strategies to those that offer superior opportunities;
High risk-adjusted returns skills from successful multi-strategy managers ,
because multi-strategy funds are not managed by those with merely
mediocre skills in a variety of strategies.
(Starr, 2004)
7. 7.
5. Strategies
Market neutral: Following this strategy, the
performance of the hedge fund will remain
completely unaffected by market-wide trends.
(Donald & Lacey, 2003)
8. 5. Strategies
Fixed income long short: Evolves the investment
strategies on private and public debt instruments
with:
Fixed maturities and rates
(Donald & Lacey, 2003)
Their derivatives
9. 5. Strategies
Equity Long Short: rely on a combination of short and
long positions in order to partially hedge the risk of
adverse market-wide moves.
(Donald & Lacey, 2003)
10. 5. Strategies
Merger Arbitrage: by shorting the stock of the
acquiring corporation and taking a long position in
the takeover target, seek to profit from corporate
mergers and acquisitions.
(Donald & Lacey, 2003)
11. 5. Strategies
Event driven:
Evolves to profit from significant corporate events as
bankruptcies, recapitalizations, mergers and acquisitions;
The performance is similar that of distressed strategies or
merger arbitrage, depending on the business cycle:
“Corporate Life Cycle Investing”
(Donald & Lacey, 2003)
12. 5. Strategies
Convertible Arbitrage: Profits from differences
between convertible bonds a company issues and the
prices of the common stock.
(Donald & Lacey, 2003)
13. 5. Strategies
Distressed Securities: generally focus on corporate
bonds. On the assumption that the ultimate payoff
(either in or out of bankruptcy) will be favorable,
should be taken a long position in the distressed
company’s bonds.
(Donald & Lacey, 2003)
14. 5. Strategies
Macro: According George Soros’ Quantum Fund, macro
hedge fund managers employ a “top down” approach to
investment decisions, where they examine geopolitical and
macroeconomic data, assuming leveraged positions in the
equity, fixed income, and currency markets that
correspond to their predictions of future economic
developments.
(Donald & Lacey, 2003)
15. References
Donald,E. and Lacey, Jr., 2003, ‘Democratizing the
hedge fund: Considering the Advent of Retail Hedge
Funds’, Third Year Paper, Harvard Law School;
Starr, E., 2004, ‘Multi-Strategy Hedge Funds - Strategy
Outline’, in Eureka Hedge, viewed 3 August 2013, from
http://www.eurekahedge.com/news/04may_archive_j
apan_multistrategy.asp